India's Rs 1.5 Lakh Crore Buy-On-Dips Investments Bruised As Global Funds Slash Exposure

Domestic institutions and retail investors are yet to yield any return from the never-seen-before levels of buying on dips. The strategy—deployed to maximise returns—has been a pain so far, especially for new investors lured by a record rally in the first half of the year.

Domestic institutions have mopped stocks worth nearly Rs 1.5 lakh crore since Sept. 27 while global funds during the same period have sold over Rs 1.55 lakh crore—a record in terms of streak and magnitude. Till Nov. 13, retail investors had infused over Rs 35,500 crore into Indian equities, NSE data showed.

Although the domestic inflows have given cushion to what would have been a disaster in Asia's fifth-largest stock market, the benchmark gauges have hit the so-called correction zone since its peak in September.

Indian retail investors have been holding up Indian markets, according to Prashanth Tapse, Senior Vice President, Research at Mehta Equities Ltd. Retail investors still remain optimistic with a hope of recovery in the domestic long term growth story which remains intact.

An investor of the bull rally in September or a dip-buyer since the beginning of the correction would see their portfolios in the red and would be unable to capitalise on the strategy yet given the magnitude of the foreign exodus.

Foreign investors saw the worst-ever outflows from their assets in India in October with assets under management falling by over $85 billion, led by the equity selloff.

The maximum rout in asset value was seen in the oil and gas sector, which saw its value fall by $27.90 billion in just a month led by Reliance Industries Ltd., which saw its stock fall by 9.2% in the month of October.

The Nifty corrected by 10.4% from the recent peak, while the mid- and small-cap indices corrected by 10.2% and 9.2%, respectively.

Retail investors remaining bullish during negative cues is due to a 'fear of missing out' factor and don’t want to be underinvested in the fastest growing economies in the world, Tapse said. "So, at every dip in the market and every time FIIs hit the sell button, directly or indirectly retail is buying and it is getting absorbed."

The Indian market is in the midst of a $10 trillion positive wealth shock by households, which will "anchor the bull market", analysts at Morgan Stanley said earlier. The market will see more domestic equity flows along with global flows across bonds and equities, it said.

This cushion given by the domestic institutions and retail investors is not the first time this year and has helped it remain resilient during any risk offs.

During the five biggest market falls this year—excluding the current one—domestic investors have bought stocks when hot money exited in huge sums. In four of the five instances, domestic investors bagged nearly 50% worth of stocks sold by global funds, aiding in a sharp recovery and a follow-up rally thereafter, according to the data compiled by NDTV Profit.

The allocation towards cash by actively managed mutual fund schemes continued to rise as a result of a fall in assets led by a decline in equity markets.

The outflows by the global funds commensurate with the beginning of the stimulus blitz in China which ended up below market expectations. Analysts have had divergent views on the trigger of the selloff from US election to valuations.

However, a key trigger is the muted earnings performance given the economic slowdown. Global brokerage firm Jefferies has cut fiscal 2025 earnings estimates for over 60% of the 98 companies, the highest downgrade ratio since early 2020.

Recent pause in bull runs comes through multiple factors like peaked out expensive valuations followed by disappointing second quarter earnings, Tapse said. "Informed retail investors will not think of reducing their equity allocation until they witness a time wise correction in the markets."

The recent correction shows there can be a possible slowdown and "test the patience of the new investors," Tapse said. Despite the correction, valuations still remain elevated, especially in midcaps and small-cap space, he said.

In a short change of stance, CLSA Ltd. moved its "tactical allocation" from China to India following Donald Trump's victory in the US elections of 2024.

“The initial reaction (to the PBOC stimulus) was to rent rather than buy the rally, ⁠yet we committed funds at the start of October by tactically deploying some of our overexposure on India to China,” strategists at CLSA said.

“Investors we met earlier this year were waiting specifically for such a buying opportunity to address Indian under-exposure,” the CLSA note stated. “Domestic appetite remains strong, offsetting foreign jitters, and valuations—though pricey—are now a little more palatable.”

The recent selloff did not anticipate weaker earnings and rising inflationary concerns which can derail the short term growth in markets and economy, according to Tapse. "Too early to say markets have reached a bottom. I believe this time market will witness time-wise consolidation and correction before making a real bottom."